Lights On Energy Needs in Latin America and The Caribbean To 2040

Energy Needs
in Latin America
and the Caribbean
to 2040
Lenin H. Balza
Ramón Espinasa
Tomas Serebrisky
Energy Needs
in Latin America
and the Caribbean
to 20401
For more information please contact:
Lenin H. Balza leninb@iadb.org

Ramón Espinasa ramones@iadb.org
Tomas Serebrisky tserebrisky@iadb.org
1 This is a joint effort of the Energy Division and the Office of the Manager of the Infrastructure and Environment
Sector at the Inter-American Development Bank. We would like to thank Raul Jimenez for fruitful discussions and
remarks while producing this report. Valuable comments and suggestions were also provided by Nicholas Khaw,
Leonardo Ortega, Laura Rojas, Martin Walter and one anonymous referee. The findings and conclusions expressed
in this report are solely those of the authors and do not reflect the view of the IDB, its Executive Directors, or the
countries they represent.
Cataloging-in-Publication data provided by the
Inter-American Development Bank
Felipe Herrera Library
Balza, Lenin H
Lights on? energy needs in Latin America and the Caribbean to 2040 / Lenin H. Balza, Ramon Espinasa, Tomas
Serebrisk y.
p. cm. — (IDB Monograph ; 378)

Includes bibliographic references.
1. Power resources —Latin American. 2. Energy Policy—Latin American. 3. Energy development—Latin

American. I. Espinasa, Ramon. II. Serebrisk y, Tomás. III. Inter-American Development Bank. Infrastructure
and Environment Sector. IV. Title. V. Series.
IDB-MG-378
JEL code: Q41, Q47, O13, O54
Keywords: Energy Demand, Energy Forecasting, Economic Development, Latin America
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Lights On? Energy Needs in Latin America and the Caribbean to 2040
Contents
5 Introduction
6 Energy and Development in LAC
9 Doing more with less
12 Painting the Energy Picture: Just Look at the numbers
16 The greenest electricity matrix
18 Oops! a dirty little secret
19 Give me all the power
20 What does the energy future hold for LAC?
26 Power to LAC to ramp up quickly
29 Pave the Energy Path with more than good intentions
30 Providing access remains unfinished business
34 But access is not enough
35 The Rise of the Middle Class
36 Knocking on heaven’s door: Time to Rationalize the Subsidy Mess
38 Concluding remarks
39 References
1
Introduction
Energy is essential to daily life. The world we know and live in
today simply cannot function without it. Whether we use it to
power our homes or factories, or to use it in our transport systems,
we are dependent on it. Even the things we do not often think of,
such as the things we eat and wear, require and embody energy. In
short, energy is pervasive throughout human activity.
This report intends to answer how much energy is likely to be

needed in countries across the Latin America and the Caribbean
(LAC) through 2040? We estimate region-wide primary energy
demand to be at least 80% higher than present day levels, reaching
over 1,538 million tonnes of oil equivalent (MTOE). However, the
region as a whole is expected to be more energy efficient. According
to our estimates, LAC will have reduced energy intensity by more
than 17% between now and 2040.
On the electricity front, unless current trends are reversed,

electricity requirements are estimated to increase by more than
91% through 2040, reaching over 2,970 terawatt-hours (TWh). That
means that the region will need to add nearly 1,500 TWh to its
current production. To put that figure into context, meeting these
electricity needs will require the equivalent of planning, building
and maintaining eighteen new hydropower stations the size of
Paraguay-Brazil’s Itaipu (the first and the third largest
region-wide and worldwide, respectively). This does not even yet
take into account the unprecedented quantum of investment
required.
This report is meant to provide a basis for understanding future

energy demand in LAC countries, and to present open and
transparent energy demand scenarios for the region through 2040.
Estimating LAC’s energy requirements in 2040 is part of a larger
programmatic knowledge agenda in the IDB’s Infrastructure
strategy aimed to support the LAC countries in adopting a new
vision of sustainable and inclusive growth2.
The rest of the report proceeds as follows. Section 2 examines some

of the linkages between energy and development in LAC countries.
Section 3 presents the region’s energy consumption at a glance.
Section 4 summarizes the projections for total energy use and
electricity requirements, based upon assumed growth rates of
per-capita income and energy prices across the region. Section 5
investigates associated challenges. Section 6 offers some
concluding remarks.
2 See Serebrisky (2014).
5
Energy and Development in LAC
2
Energy is both a contributor to and a function of growth. Without energy, we
cannot provide the basic goods and services that ensure the well-being of current
and future generations. On the other hand, population and income growth are key
drivers for total energy consumption. Indeed, energy use is continuously boosted
by the scale and speed of economic development.
The linkages between energy consumption and economic growth are

well-documented. Figure 1 reveals how energy use has increased steadily over time
in close association with economic activity both globally and in the LAC region,
while Figure 2 shows the strong positive relationship more specifically across LAC
countries.
Figure 1 Energy Use and GDP Trend

250
200
Index 1980=100
150
100
50
1970 1980 1990 2000 2010

Source: Authors' elaboration based on WDI and IEA data Year
Energy (World) GDP (World) Energy (LAC) GDP (LAC)
7
2 Energy and Development in LAC Lights On? Energy Needs in Latin America and the Caribbean to 2040
Figure 2
LAC’s Energy Use vs. GDP (2013)

2500
VEN
CHL
Energy use (kg of oil equivalent per capita)
ARG
2000
Others
MEX
BRA
1500
URY
ECU JAM CRI PAN

1000
BOL GTM PER

PRY
DOM
NIC
HTI HND SLV COL
500
0 2000 4000 6000 8000 10000

Source: Authors’ elaboration based on WDI and IEA. GDP per capita (constant 2005 US$)
Although energy use seems to be gradually decoupling from economic growth

worldwide, energy use and economic growth are still highly positively correlated.
Indeed, regardless of enormous improvements on effiency, and international
technology difussion, energy consumption continues to grow in tandem with the
Area of circle proportional
to country’s population. economy—modern society has yet been able to sever the link between energy use
and economic growth.
Will the trend of closely linked energy consumption with economic growth
continue to hold in the future? Arguably, access to more efficent technologies
would allow our countries to keep growing while reducing energy consumption
over time. If so, countries worldwide may be ready to follow a less energy-intensive
path. Can developing countries leapfrog past an energy-intensive development
path towards a less energy-intensive one? This question remains to be answered.
8
Doing more with less

Energy intensity, defined as total energy use divided by GDP, indicates the
amount of energy required to produce a unit of GDP or, in other words, the amount
of energy needed to generate a dollar’s worth of economic output. Figure 3
compares energy intensity the LAC region to other regions. Thought there is a wide
variation across countries, the LAC region emerges as one of the least
energy-intensive regions worldwide.
Figure 3 Average Energy Intensity by Region

594
Energy use (kg of oil equivalent) per unit og GDP (constant 2005 US$)
600
530
462
1
440
1
1
400
230
1
200
1
1
1
1
1
130
1 1 1 1 1
0
China Africa Middle East Asia* LAC OECD

* Excluding China
Source: Authors’ elaboration based on IEA and WDI.
9
Figure 4 shows LAC’s energy intensity over time. Though there have been
consirable decade-to-decade variations, the rate of energy instensity has declined
over the past 40 years. The amount of energy required per unit of GDP dropped by
about 13% since the early seventies, reaching, on average, 230 kg of oil equivalent
per unit of GDP (at constant 2005 US$), above the level registered by countries
belonging to the Organisation for Economic Co-operation and Development
(OECD), but far below other regions in the world, such as Asia, Africa, and the
Middle East.
Figure 4 LAC’s Energy Intensity

105
Energy Intensity Index (1971=100)
100
95
90
85
1970 1980 1990 2000 2010

Source: Authors' elaboration based on WDI and IEA data Year
10
Declining energy intensity suggests that the region is doing more with less
energy. Put another way, this is essentially an increase in the productivity of
energy consumption. Recent empirical evidence identified per capita income, oil
prices, and overall economic growth as the key drivers behind this trend (Jimenez
and Mercado, 2014). Surprisingly, this reduction in energy intensity (or increase in
energy productivity), took place in the absence of any systematic and significant
energy-saving programs, suggesting that market signals –energy prices– may have
had a substantial role in reducing the region’s energy intensity.
Figure 5 shows that the recorded donward trend in energy intensity is inversely
correlated with the increase in the overall price of energy, particularly in the
2000s.
Figure 5 Energy Intensity vs Energy Prices
120
100
100
Enegy price Index
Energy Intesity Index
95
80
60
90
40
20
85
1970 1980 1990 2000 2010

Year
Source: Authors' elaboration based on World Bank Commodity Price Data and IEA
Energy Intensity (left−side axis) Energy Prices (right−side axis)
11
Painting the Picture: Just look at the numbers
3
The energy sector has increased in tandem with the economy. Between 1971 and
2013, 3.4% of LAC’s GDP average annual growth rate was fueled by and fueled
approximately 3.0% average growth rate in primary energy use, and an
approximately 5.4% growth rate in electricity consumption.
Energy use 3 in Latin America has more than tripled over the past forty years,
from 248 million tonnes of oil equivalent (MTOE) in 1971 to 848 MTOE in 2013,
representing more than 8% of the increase in global energy demand over the
period. Fossil fuels (coal, oil, and gas), which accounted for 68.9% of all primary
energy demand in 1971, continue to represent the most important primary fuels in
the energy matrix, increasing to 74.4% in 2013. Hydrocarbons (oil and gas) alone
accounted for 69.4% of total energy consumed in 2013. A notable change in
consumption pattern is in natural gas consumption, which went from a modest 11%
of total energy use to more than 23%, indicating an increased diversification
towards low-carbon fuels.
Table 1 presents comparative energy source shares for Latin America as a whole.
Table 1 Energy Use in LAC (Mtoe)

ENERGY SOURCE 1971 SHARE-71 2013 SHARE-13 CAGR
Total 248.4 100% 848.7 100% 3.0%
Coal 8.0 3.2% 42.8 5.0% 4.1%
Oil 135.9 54.7% 389.6 45.9% 2.5%
Gas 27.2 10.9% 199.0 23.4% 4.9%
Nuclear . . 8.5 1.0% .
Hydro 7.6 3.1% 62.8 7.4% 5.2%
Biofuel & Waste 69.7 28.1% 136.7 16.1% 1.6%
Other Renewables* . 8.6 1.0% .
Source: Authors’ calculations based on IEA World energy balances. CAGR: Compound annual growth rate.
3 It refers to use of primar y energy before

transformation to other end-use fuels, which * Other renewables include
is equal to indigenous production plus Geothermal, Solar & Wind.
imports and stock changes, minus exports
and fuels supplied to ships and aircraft
engaged in international transport.
13
3 Painting the Picture: Lights On? Energy Needs in Latin America and the Caribbean to 2040
Just look at the numbers
Demand for renewable energy, including hydro, biofuel and waste, geothermal, and
wind and solar, grew from 77 MTOE in 1971 to 208 MTOE in 2013. However, the share
of renewable energy in the primary energy mix declined from 31% to just under 24%.
This observation is largely driven by a switch to modern and more efficient energy
sources, e.g. from traditional biomass to electricity.
Figure 6 Total Energy Use in LAC (Mtoe)

800
Million tones of oil equivalent (Mtoe)
600
400
200
0
1971 1981 1991 2001 2013

Source: Authors’ calculations based on IEA World Energy Balances Year
Coal Oil Gas Other Renewables
*Other Renewables
include Geothermal,
Solar & Wind
Nuclear Hydro Biofuel & Waste
14
The region’s six largest economies – Brazil, Mexico, Argentina, Venezuela, Chile
and Colombia – collectively reached around 705 MTOE in 2013, representing more
than three-quarters of present day regional demand and slightly more than 85% of
regional increase since 1971. Mexico and Brazil alone account for 57.1% of the
region’s total energy use. In Brazil, primary energy demand increased, on average,
by nearly 3.5% per year since 1971, to reach 293 MTOE in 2013, while in Mexico,
energy demand grew by 3.6% per year to reach 191 MTOE, making it the second
largest energy consumer in the region.
Total final energy consumption 4 by end-use sectors, as Table 2 indicates,

increased from 190 MTOE in 1971 to 610 MTOE in 2013, which is 220% higher than
in the early seventies and represents an average annual growth rate of 2.8%. Both
the industrial and transport sectors accounted for more than 302 MTOE of the
increase, or about three-quarters of the overall growth in total final consumption
since 1971.
The transport sector has the largest share of energy use, increasing by around 3.5%
per year, on average, to reach 210 MTOE in 2013. This is followed closely by
industrial energy consumption, which grew by 3% annually between 1971 and 2013,
increasing, slightly, its share of total final consumption from 31% to 33%.
Meanwhile, due to access to more efficient energy sources, the residential sector’s
share of total final consumption dropped from 29% in 1971 to less than 17% in
2013, recording the lowest annual growth rate over the period at 1.4% per year, on
average.
Table 2 Total Final Consumption by major end-sectors (Mtoe)

SECTOR 1971 SHARE 2013 SHARE CAGR
Industry 60.7 31.8% 202.3 33.2% 2.9%
Transport 49.3 25.8% 209.5 34.3% 3.5%
Residential 56.4 29.6% 99.1 16.3% 1.4%
Commercial 3.8 2.0% 28.8 4.7% 4.9%
Other 20.6 10.8% 70.2 11.5% 3.0%
TOTAL 190.8 610.0
Source: Authors’ calculation based on IEA World Energy Balances. CAGR: Compound annual growth rate.
4 Total final energy consumption refers

to total energy consumed by end-use
sectors, i.e. industr y, transport, residential,
commercial, and others. In that sense,
energy used for transformation processes
and for own use of the energy producing
industries is excluded. 15
The greenest electricity matrix

Renewable energy sources continue to dominate the power matrix in LAC, giving
the LAC the ‘cleanest’ matrix worldwide. LAC’s Gross Power generation 5 has
increased nine-fold since the early seventies at an average annual growth rate of
5.4%, catching up with sharply increasing electricity needs. In fact, the region’s
electricity supply reached nearly 1,553 terawatt-hours (TWh) in 2013, up from
about 170 TWh in 1971. Hydropower alone accounted for more than 47% of the
total increase in the regional electricity supply since 1971.
As can be seen in figure 7, there are significant differences in the fuel mix across
regions worldwide. In fact, the share of renewable generation for LAC in 2013
(52.4%) is notably higher than any other region. This share is almost three times
the world average (22%).
Figure 7 Electricity Matrix by Source and Region
1971
CHINA
2013
1971
LAC
2013
1971
OECD
2013
1971
World
2013
0 20 40 60 80 100
Source: Authors’ calculations, IEA and WDI Percent
5 Gross power generation is measured

at the terminals of all alternator sets in a
Coal Oil Gas Other Renewables
station. It include own use, and transmission
and distribution losses. Production includes
the output of electricity plants that are *Other Renewables
designed to produce electricity only, as well include Geothermal,
as that of combined heat and power plants. Solar & Wind
Nuclear Hydro Biofuel & Waste
16
Fossil fuel generation increased from 79 TWh in 1971 to 706 TWh in 2013,
keeping its share fairly constant around 47%. However, it is important to highlight
that gas-fired generation overtook oil-fired generation as the largest fossil source
of supply in the region as well as the most significant source of electricity after
hydropower, accounting for almost 25% of the power generation – more than coal
and oil generation combined. Coal-fired generation expanded by 7% per year to
reach 98.8 TWh, while the use of oil for power generation grew at a slower rate of
3.2% per year to represent 15% of the output in 2013.
Intermittent renewable energy - solar, wind, and wave power- recorded a

spectacular average growth rate of 34% over the last decade, faster than any other
power source. However, as shown in Figure 8, these sources still represent only
0.9% of the total power generation of LAC and are perhaps too small to consider as
evidence of a definitive new trend—there is still much uncertainty about how much
and how fast these sources will grow.
Figure 8 Solar and Wind electricity sources are growing very fast…
still not fast enough.
800
15000
Solar Photovoltaics Wind

600
Gigawatt−hour (GWh)
Gigawatt−hour (GWh)
10000
Between 2000 and 2013, Between 2000 and 2013,

400
LAC’s Solar Photovoltaics LAC’s Wind generation

generation increased increased at an annual
at an annual rate of 15.1% rate of 36.6%
5000
200
0
2000 2002 2004 2006 2008 2010 2012

2000 2002 2004 2006 2008 2010 2012
Year Year
Source: Authors’ calculations based on IEA data
1
.92
Solar photovoltaics
.77
% of total electricity generation
.8
Non−conventional Renewable electricity sources

represents 0.9% of the total power generation in 2013
.6
.43 Wind
.37
.4
.24
.15 .16
.2
.09 .09 .11 Other

.03 .04 .05 .05
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Authors’ calculations based on IEA data Year
17
Oops! A dirty little secret

The LAC region has the cleanest electricity matrix, with a sharp contrast in
the share of renewables compared to other regions in the world. Nevertheless, one
should be careful when interpreting this statement: Aggregate figures hide great
heterogeneity among countries. The LAC region is no exception. LAC’s aggregate
figure is strongly influenced by the six largest economies. Indeed, the power
generation of these countries accounts for more than 80% of the total electricity
generation of the region. For instance, if Brazil is excluded from the region, total
renewable generation in LAC falls from 52.4% to 38.2%. Although LAC is still the
region with the cleanest power matrix even with Brazil removed, it is not as clean
as it seems to be (see Figure 9).
Figure 9 Power Matrix (2013): Not As Clean As It Seems

100
21.9%
38.2%
80
52.4% 10.6% Renewables*
1.8%
60
Percent
2.1%
Nuclear
40
67.4%
60.0%
45.5%
20
Fossil Fuels
0
LAC LAC without Brazil World

Source: Authors’ calculations based on IEA and WDI data *Renewables include Hydro, Geothermal, Solar, Wind, and Biofuels & Waste.
18
Give me all the power

Final electricity consumption 6 increased by 5.4% annually from 1971 to 2013,
reaching over 1,333 TWh in 2013, mainly due to persistent economic expansion,
rapid urbanization, and the rise of the middle class. Despite electricity demand
increasing by more than 1,180 TWh during the period, Latin America and the
Caribbean’s regional average annual per capita demand for final electricity
consumption measured at 2,153 kilowatt hours (kWh), well below high-income
countries’ average level of around 8,061 kWh per capita.
Among end users, the industrial sector is the largest electricity-consuming sector,
accounting for more than 46% of the total electricity demand of the region (see
Figure 10). Power demand in the residential sector rose by 893% since the early
seventies, supported by a widespread electrification program that expanded the
use of modern electrical appliances, and, most importantly, per capita income
growth. However, the residential sector’s share remains fairly constant at around
27%. Electricity consumption in the commercial and public services sector
expanded more than twelve times over the period, making it the fastest growing
sector, accounting for 22% of electricity consumption in 2013.
Figure 10 Power Consumption by major-end sectors
9.1% 5.7%
13.2% 51.3% 20.5%

46.3%
25.4%
27.1%
.9% .4%
1971 2013
Source: Authors’ calculations based on IEA World energy balances data
6 Final Electricity consumption measures the

production of power plants and combined Others
heat and power plants less transmission,
Residential Commercial Industry Transport
distribution losses and own use by heat and and public services
power plants.
19
4
What does the energy future hold for LAC?
We estimate that LAC’s primary energy use will continue to grow steadily over the
coming decades, accompanying economic growth and a rising middle class.
Consequently, as can be seen in Figure 11, total energy use is projected to expand
by more than 80% through 2040 at an average annual rate of 2.2%, reaching over
1,538 MTOE by the end of the outlook period.
Figure 11 LAC: Total Energy Use to 2040

1500
1,538 Mtoe
Million tonnes of oil equivalent (Mtoe)
1000
Expands by 81.2%
CAGR: 2.2%
500
0
1970 1980 1990 2000 2010 2020 2030 2040

Source: Authors’ calculations. CAGR: Compound annual growth rate Year
Energy Use Projection
21
4 What does the energy Lights On? Energy Needs in Latin America and the Caribbean to 2040
future hold for LAC?
Table 3 below summarizes our main results. In our modeling exercise, the
six-largest economies are set to continue to dominate the region’s energy use trend.
More than 83% of the total increase in primary energy demand through 2040 is
predicted to come from these countries. Brazil’s primary energy needs will expand,
at about 2.5% per year, from 294 MTOE in 2013 to 577 MTOE in 2040. Mexico’s
needs will grow even faster, by 2.8% per year, from 191 MTOE to 400 MTOE. Energy
use is projected to increase more rapidly in Chile and Colombia largely due to more
rapid economic growth and higher income per capita.
Table 3 Total Energy Use scenario 2040 (Mtoe)

COUNTRY 2013 2040 GROWTH CAGR
Argentina 81 123 52.6% 1.6%
Brazil 294 577 96.6% 2.5%
Chile 39 99 154.7% 3.5%
Colombia 32 67 110.3% 2.8%
Mexico 191 400 109.2% 2.8%
Venezuela 69 104 50.7% 1.5%
Others 144 169 17.3% 0.6%
LAC 849 1538 81.2% 2.2%
Source: Authors’ calculations
22
For the region as a whole, while per capita energy use will grow from 1.37 toe in
2013 to 2.0 toe in 2040, this is still much lower than per capita energy use in
high-income countries today. Furthermore, big differences across countries in the
region will still remain (see Figure 12). In Brazil, each person will use on average
2.44 toe of primary energy in 2040, while Chile will more than double the LAC
average, reaching over 4.66 toe at the end of the outlook period.
Figure 12 What does the energy future looks like?

5
CHL’40
Energy use per capita (tonne of oil equivalent )
4
3
VEN’40 MEX’40
ARG’40 BRA’40
VEN’13 CHL’13 LAC’40
2
ARG’13
BRA’13 MEX’13
LAC’13
Other’13 COL’40
1
COL’13 Other’40
5000 10000 15000 20000 25000

Source: Authors’ calculation GDP per capita (constant 2005 US$), Log scale
2013 2040
23
Although there are wide disparities in the primary energy intensity projected
among LAC countries, the amount of energy required per unit of GDP is set to
continue its downward trend. We estimate that the LAC region will have reduced
energy intensity by more than 17% by the end of the projection period (see Figure
13). Technological change and the adoption of more efficient technologies will
likely play a crucial role in a more rapid decline in regional energy intensity.
Figure 13 LAC energy intensity projected to continue it’s decline

300
Kg of oil equivalent per unit of GDP (constant 2005US$)
Forecast
Declines by 17%
250
200
150
1970 1980 1990 2000 2010 2020 2030 2040

Source: Authors’ calculations Year
Projection period Energy intensity
24
BOX.1
How we did it? Modeling Framework
AUTO-REGRESSIVE INTEGRATED MOVING AVERAGE WITH EXOGENOUS INPUTS MODEL – ARIMAX (P, D, Q)
This segment describes the empirical methodology used to estimate total energy
use and electricity needs for the sample of Latin American and Caribbean
Countries between now and 2040.
Energy use and electricity needs are modeled as a function of its past values and
disturbances, as well as a linear combination of exogenous variables to include
additional information over the forecast window. The components of the ARIMAX
are an Auto-regressive vector or lags of the errors [AR(p)], a moving average or
lags of the dependent variable [MA(q)] and an integration degree [I(d)], which is
chosen to stationarize the dependent variable. In addition, we have included GDP
per capita in constant terms and energy prices as covariates [X].
Our basic set-up has the following structure:
In other words, total energy use is modeled as a linear function of its past
realizations, a moving average representation and the projection of both covariates
(i.e. income and energy prices). That is, the forecast is a function of the
information set until t and the exogenous variables.
The order of differencing to get a stationary dependent variable is expressed by the

vector energy t-h. It is important to point out that the vector of coefficients, in
particular δ, which captures the magnitude of the response of energy use to the
GDP and energy prices, are estimated only with information until period t.
For the purposes of estimation, we follow standard procedures: (i) the

Dickey-Fuller test for unit root is performed in order to identify the order of
differencing to stationarize the series (d), (ii) the identification of a possible
ARIMA model is based on a visual inspection of the Auto-correlation Function
(ACF) and Partial Auto-Correlation Function (PACF) of the sample, (iii) the final
model is selected based on the best fit using the Akaike Information Criteria, as
suggested by Hamilton (1994).
25
Power to LAC to ramp up quickly

Regional electricity needs are expected to expand by more than 91% by 2040,
reaching over 2,970 TWh. This therefore means the region will need to add nearly
1,500 TWh to meet its electricity requirements. Broadly speaking, this figure
equals eighteen (18) times the electricity generated in 2014 by the largest
hydroelectric power station in LAC (and the third largest worldwide) –
Paraguay-Brazil’s Itaipu. Thus, an unprecedented amount of new energy
infrastructure will need to be planned and financed.
It is expected that more than 80% of the projected growth would come from the six
largest economies in the region. Brazil (37%) and Mexico (19%) alone would
account for more than half of the electricity needs of the region in 2040. Total
electricity requirements in Brazil would increase by 96%, from 570 TWh in 2013 to
more than 1120 TWh in 2040, while Mexico’s needs would increase by 87%,
reaching over 556 TWh.
Among Latin America’s largest economies, electricity needs will grow most rapidly,
on average, in Chile (3.3%) and Colombia (3.4%), reaching over 175 TWh and 159
TWh respectively; this primarily reflects strong economic performance (see Table
4 and Figure 14). Conversely, we project a considerably slower average growth
rate for electricity requirements in both Argentina (1.6%) and Venezuela (1.8%),
primarily due to expectations of weak economic activity in both economies over the
forecast period, though this is subject to much uncertainty.
Table 4 Electricity needs through 2040 (TWh)

COUNTRY 2013 2040 GROWTH CAGR
Argentina 139 213 52.7% 1.6%
Brazil 570 1120 96.4% 2.5%
Chile 73 175 139.5% 3.3%
Colombia 65 159 145.8% 3.4%
Mexico 297 556 87.2% 2.3%
Venezuela 118 191 61.4% 1.8%
Others 290 556 91.7% 2.4%
LAC 1553 2970 91.2% 2.4%
Source: Authors' calculations. CAGR: Compound annual growth rate.
26
Figure 14 Total Electricity needs through 2040 (TWh)

1,200
900
549.7
Terawatt−hours (TWh)
600
258.9
570.3
300
73.5
297.1 72.7
101.9 94.3
139.5 118.3
73.1 64.7
0
Brazil Mexico Argentina Venezuela Chile Colombia
Source: Authors' Calculation
2013
Additional needs through 2040
27
BOX.2 We are not alone

– Overall energy market outlook
This is certainly not the first attempt to project energy and electricity requirements
across the region. In fact, there are a number of different estimates for energy
demand growth in the public domain. The International Energy Agency, Exxon
Mobil, British Petroleum, and the World Bank have conducted some of the most
comprehensive analyses of expected regional energy demand. Despite the number
of methodological questions that one may have behind all these projections, energy
forecasts have been proven to be extremely useful to governments, decision
makers, and industry leaders worldwide who must make long-terms commitments.
However, the energy future is hard to predict and none of these estimates should
be taken as irrefutable truth. Each projection has its pros and cons.
Table 5 summarizes the overall energy market outlook. Our aggregate estimates
(IDB) seem to be within acceptable bounds. For instance, the International Energy
Agency (IEA) – which provides one of the most comprehensive analyses of global
energy demand – offers three different scenarios. IEA #1 and #2 refer to scenarios
differing in their incorporation of a set of policies and measures that affect energy
markets. IEA 3# illustrates a scenario that limits the rise of global temperature to
two degree Celsius (2 °C). Along with IEA’s forecast, World Bank, PB and Exxon
Mobil projections are also provided.
Table 5: Market projections to 2040. Compound Annual Growth Rate
Table 5 Market Projections to 2040

WORLD EXXON
LAC IDB* BANK** IEA #1 * IEA #2 * IEA #3 * MOBIL* BP^
Total Energy Demand 2.2% N/A 1.5% 1.8% 0.8% 1.9% 2.1%
Electricity Demand 2.4% 3.7% 2.3% 2.6% 1.8% 2.4% N/A
Source: Authors’ Calculations, World Bank, IEA, and Exxon Mobil and British Petroleum
**IDB, IEA and Exxon Mobil projections to 2040

**WB scenario to 2030
^BP Forecast to 2035
28
Pave the energy path with more

than good intentions
5
In considering the future of the LAC region’s energy path, there are
several other dimensions that deserve focused attention.
These include:
Providing access remains

unfinished business in LAC
Despite tremendous efforts in the region, much remains to be done to achieve
universal access to modern energy both to those without any access to energy and
to the millions of people who continue to rely on solid fuels, such as traditional
biomass and coal for lighting, and heating. Providing access to electricity has a
positive impact on a wide range of development outcomes, including education,
income, health, and gender equality, among many others. For example, electric
lighting can easily increase a child’s study hours, leading to better scholastic
performance. That, in turn, contributes to improved employability prospects for
that child.
According to World Development Indicator figures, as of 2012, nearly 22 million of

people-- 4% of the LAC population--still lack access to electricity, with most of
them living in rural and remotes areas with low population density (see Figure
15). Connecting or providing off-grid solutions to those who remain without access
requires greater broad-based efforts between the public and private sectors along
with specific targeted programs. Furthermore, beyond just cooperation between
development agencies, providing access to electricity to low-income and isolated
communities demands a different business model.
30
5 Pave the energy path Lights On? Energy Needs in Latin America and the Caribbean to 2040
with more than good intentions
Figure 15 A Electricity Access remains a regional challenge
MEXICO
CUBA
DOMINICAN
REPUBLIC
JAMAICA PUERTO RICO (US)
BELIZE
HONDURAS HAITI
GUATEMALA
NICARAGUA
EL SALVADOR
COSTA RICA GUYANA

VENEZUELA SURINAME
PANAMA FRENCH GUIANA (FRANCE)
COLOMBIA
ECUADOR
BRASIL
PERU
Access to electricity (% of pop)

BOLIVIA
96.21 - 100.00 PARAGUAY
93.71 - 98.20
URUGUAY
ARGENTINA
82.21 - 93.70
CHILE
37.91 - 82.20
37.90
Source: Authors’ elaboration based on WDI data

Figure 15 B People without electricity ( millions)
People without electricity (Millions)
0.00 - 016
0.20 - 0.43
0.97 - 1.41
2.65 - 3.30
6.39
Source: Authors’ elaboration based on WDI data

Table 6 Where do the most people without electricity live?

ACCESS TO ELECTRICITY NUMBER OF PEOPLE RURAL ACCESS URBAN ACCESS
COUNTRY (% OF POP) WITHOUT ELECTRICITY (% OF RURAL POP) (% OF URBAN POP)
Argentina 99.8% 84.190 95.7% 100.0%

Bahamas, The 100.0% 0 100.0% 100.0%
Barbados 90.9% 25.693 79.7% 100.0%
Belize 100.0% 0 100.0% 100.0%
Bolivia 90.5% 972.682 72.5% 99.3%
Brazil 99.5% 1.012.008 97.0% 99.9%
Chile 99.6% 69.554 97.8% 99.8%
Colombia 97.0% 1.406.431 87.9% 99.7%
Costa Rica 99.5% 23.271 98.7% 99.9%
Dominican Republic 98.0% 203.101 96.6% 98.6%
Ecuador 97.2% 431.746 92.3% 99.5%
El Salvador 93.7% 382.551 85.7% 97.9%
Guatemala 78.5% 3.304.283 72.1% 84.8%
Guyana 79.5% 155.726 75.0% 90.5%
Haiti 37.9% 6.389.362 15.0% 72.3%
Honduras 82.2% 1.377.031 65.8% 96.9%
Jamaica 93.0% 189.546 87.0% 98.0%
Mexico 99.1% 1.098.639 97.2% 99.6%
Nicaragua 77.9% 1.298.825 42.7% 100.0%
Panama 90.9% 341.602 79.7% 94.4%
Paraguay 98.2% 114.825 96.3% 99.3%
Peru 91.2% 2.653.972 72.9% 98.3%
Suriname 100.0% 0 100.0% 100.0%
Trinidad and Tobago 99.8% 2.310 99.0% 100.0%
Uruguay 99.5% 16.984 95.1% 99.8%
Venezuela, RB 100.0% 0 100.0% 100.0%
LAC 96.4% 22.012.454 87.1% 99.0%
Source: Authors’ calculations based on WDI data.
33
But access is not enough
While many countries in the region are focusing on domestic energy

security and lowering their dependence on carbon-based fuels, other
countries are struggling to simply secure sufficient energy to meet their
basic needs. Affordable and secure supplies of energy are essential for
sustainable economic development. It is paramount for Latin America
to achieve universal access to affordable and reliable energy to reduce
poverty, improve development outcomes, and enhance competitiveness
of countries in the region.
Power cuts are becoming more frequent and major blackouts are now a
reality in the region; these issues are a growing threat across the region
that demands immediate attention. According to World Bank
Enterprise Surveys, on average, businesses in Latin America suffer 2.8
electrical outages in a typical month, which usually last 1.5 hours.
Nearly 40% of firms in the region have identified the power sector as a
major constraint for developing its full potential.
More recently, as part of our current research agenda, the

Inter-American Development Bank (IDB) conducted a public opinion
survey in five of the most important Latin American cities, three
megacities with more than 10 million people (Buenos Aires, Mexico
City, and Sao Paulo) and two cities that will likely to reach that category
in the near future (Bogota and Lima). According to the report, lack of
electricity service continues to be a major obstacle to improving people’s
lives. Furthermore, there are signs of potential energy discrimination
against the poorest in urban areas: on average, low-income households
tend to experience more blackouts and power surges than high-income
households (IDB, 2014).
34
The Rise of the Middle Class
There is a clear need to understand the nature and implications of

poverty reduction and the rise of the middle class for energy use. LAC’s
middle class made up about 29% of the population in 2009 and is
expected to increase to 42% by 2030 (Ferreira et al., 2013). That means
a net addition of 128 million people into the middle class lifestyle, a
figure roughly equal to the combined populations of Colombia,
Argentina and Peru today. The growth of the middle class will be largely
a result of sustained and robust economic expansion
in Latin America.
There are many political and economic implications of a larger middle

class. The emergence of wealthier households with a higher purchasing
power translates into more energy-using assets, such as cars, personal
computers, air conditioners, and a near-infinite number of household
appliances. Indeed, recent empirical evidence has shown that energy
consumption increases sharply as households move out of poverty into
the middle class (Gertler et al., 2011).
Providing energy services to the middle class is much more complicated

than simply delivering access: middle class consumers are no longer
satisfied solely with having access; they demand access that is both
affordable and reliable, which is much more difficult to deliver than
access alone. However, LAC can and should take this as an opportunity
to guide its citizens towards more energy efficient lifestyles.
35
Knocking on heaven’s door:

Time to Rationalize the Subsidy Mess
Keeping low energy prices comes with a high cost. LAC’s energy subsidies were
estimated at US$ 73 billion (1.3 % percent of regional GDP) in 2013. Energy subsidies
are sizeable across the whole region (see Figure 16). However, they are particularly
high in countries like Venezuela, Bolivia, Ecuador, Trinidad and Tobago, Haiti, Belize,
Nicaragua, El Salvador, Argentina, Dominican Republic, and Suriname.
Figure 16 Energy Subsidies as % of GDP, 2013

VEN
BOL
ECU
TTO
HTI
BLZ
NIC
SLV
ARG
DOM
SUR
GUY
MEX
HND
ATG
PAN
KNA
GRD
BHS
GTM
COL
BRB
PRY
JAM
DMA
BRA
0 5 10 15
Source: Authors’ elaboration based on IMF data % of GDP
Oil Gas Electricity
36
Although subsidies can be seen as a tool for redistribution, too often energy subsidies
are found to be inefficient, regressive, and highly inequitable. For instance, in
Venezuela, it is estimated that the wealthiest 25% receives more than 62% of the value
of the gasoline subsidy alone (Barrios and Morales, 2012). Overall energy subsidies cost
Venezuela more than $36 billion in 20137 , equivalent to around 16% of GDP – more
than government resources allocated to health (3.9%), education (4.9%), and housing
(1.8%) combined (see Figure 17).
Venezuela Energy Subsidies

Figure 16 and Critical Government spending as % of GDP, 2013
15
3.2%
2.2%
10
1.8%
Percent of GDP
4.9%
10.6%
5
3.9%
0
Energy Subsidies Critical goverment spending

Source: Authors’ elaboration based on IMF and SISOV data
Oil Natural Gas Electricity Health Education Housing
Nevertheless, in addition to the fiscal burden and distributional issues, keeping

artificially low energy prices encourages both overuse and inefficiency, which in turn
have important environmental impacts and accelerates the depletion of natural
resources. Disproportional energy subsidies also reduce and eliminate incentives to
develop renewable technologies that can compete against conventional energy sources.
The time has come for governments across the region to revise existing policies on
7 See International Monetar y Fund (2015). energy subsidies. The region simply cannot afford them.
37
Concluding Remarks
We estimate that the scale and speed of economic development as well as
population growth will continue to drive LAC’s primary energy use over the coming
decades. However, the region will use energy more efficiently. Thus, total energy
demand is projected to expand by more than 80% through 2040 at an average
annual rate of 2.2%, reaching over 1,538 million tonnes of oil equivalent (MTOE).
We anticipate some gains in efficiency across economies region-wide. Considering
the region as a whole, LAC will have reduced energy intensity by more than 17% by
the end of the projection period. By using relatively less energy, the region saves
natural resources while cutting down on pollution.
On the electricity side, regional power needs are projected to grow by more than
91% through 2040, reaching over 2,970 terawatt-hours (TWh) – growing at an
average annual rate of 2.4%. Keeping the lights on for everyone means that the
region will need to add nearly 1,500 TWh to meet its additional electricity
requirements. Putting this figure into context, the required electricity is equivalent
to eighteen times the electricity generated in 2014 by the largest hydroelectric
power station in LAC (and the third largest worldwide) –Paraguay-Brazil’s Itaipu.
Needless to say, meeting these electricity needs will require unprecedented levels
of investments.
These issues raise several though-provoking questions. For instance, how are we
going to supply estimated energy needs across countries in the region? Are
non-conventional renewable energy sources like solar and wind capable of meeting
our energy needs and surpassing conventional fossil fuels as the most important
energy sources? Or will the LAC countries rely on fossil fuels in a bigger way?
Where should the region focus its efforts? All these interesting questions remain to
be answered and are avenues for future research.
Meeting these energy and electricity requirements imply enormous challenges. In

one way or another, every source of energy poses tremendous environmental and
social impacts. Minimizing those impacts while providing affordable and reliable
energy for all is the key challenge. Energy is the issue of the time, and much work
must be done.
38
References
Balza, L., Jimenez, R., and Ortega, L. (2013). “Models for Forecasting Energy
Use and Electricity Demand: An application to Central American Countries, Mexico
and Dominican Republic”. Inter-American Development Bank. Mimeo.
Barrios, D., and Morales J.R., (2012). Rethinking the Taboo: Gasoline Subsidies
in Venezuela. Harvard University.
Coady, D., Parry, I., Sears, L., and Shang B. (2015). How Large Are Global
Energy Subsidies?. IMF Working paper. International Monetary Fund.
Di Bella, G., Norton, L., Ntamatungiro, J., Ogawa, S., Samake, I., and
Santoro, M. (2015). Energy Subsidies in Latin America and the Caribbean:
Stocktaking and Policy Challenges. IMF Working paper. International Monetary
Fund.
Ferreira, Francisco, Julian Messina, Jamele Rigolini, Luis Felipe

Lopez-Calva, Maria Ana Lugo and Renos Vakis (2013). “Economic mobility
and the rise of the middle class”. The World Bank. Washington, D.C.
Gertler, Paul, Orie Shelef, Catherine Wolfram and Alan Fuchs (2011)
“Poverty, Growth, and the Demand for Energy.” Working paper. UC Berkeley.
Inter-American Development Bank (2014). “Megacities & Infrastructure in

Latin America: What its people think”. Washington, D.C.: Inter-American
Development Bank.
International Energy Agency. 2011. World Energy Outlook, 2011. Paris, France.
Jimenez, R. and Mercado, J. (2014). “Energy intensity: A decomposition and

counterfactual exercise for Latin American countries”. Energy Economics, 2014, vol.
42, issue C, pages 161-171
Serebrisky, Tomas (2014) “Sustainable Infrastructure for Competitiveness and

Inclusive Growth”. Inter-American Development Bank. Washington, D.C.
Yepez-Garcia, R., Johnson, T., and Andres, L. (2011). “Meeting the Balance of
Electricity Supply and Demand in Latin America and the Caribbean”. The World
Bank. Washington, D.C.
Wolfram, Catherine, Orie Shelef and Paul Gertler (2012) “How will energy
demand develop in the Developing World” Working paper. UC Berkeley.
39

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Energy Needs

Lenin H. Balza leninb@iadb.org

p. cm. — (IDB Monograph ; 378)

1. Power resources —Latin American. 2. Energy Policy—Latin American. 3. Energy development—Latin

JEL code: Q41, Q47, O13, O54

Keywords: Energy Demand, Energy Forecasting, Economic Development, Latin America

6 Energy and Development in LAC

9 Doing more with less

12 Painting the Energy Picture: Just Look at the numbers

16 The greenest electricity matrix

18 Oops! a dirty little secret

19 Give me all the power

20 What does the energy future hold for LAC?

26 Power to LAC to ramp up quickly

29 Pave the Energy Path with more than good intentions

30 Providing access remains unfinished business

34 But access is not enough

35 The Rise of the Middle Class

36 Knocking on heaven’s door: Time to Rationalize the Subsidy Mess

This report intends to answer how much energy is likely to be

On the electricity front, unless current trends are reversed,

This report is meant to provide a basis for understanding future

The rest of the report proceeds as follows. Section 2 examines some

Energy and Development in LAC

The linkages between energy consumption and economic growth are

Figure 1 Energy Use and GDP Trend

1970 1980 1990 2000 2010

Energy (World) GDP (World) Energy (LAC) GDP (LAC)

LAC’s Energy Use vs. GDP (2013)

ECU JAM CRI PAN

BOL GTM PER

0 2000 4000 6000 8000 10000

Although energy use seems to be gradually decoupling from economic growth

Doing more with less

Figure 3 Average Energy Intensity by Region

China Africa Middle East Asia* LAC OECD

Figure 4 LAC’s Energy Intensity

1970 1980 1990 2000 2010

Figure 5 Energy Intensity vs Energy Prices

1970 1980 1990 2000 2010

Energy Intensity (left−side axis) Energy Prices (right−side axis)

Painting the Picture: Just look at the numbers

Table 1 Energy Use in LAC (Mtoe)

3 It refers to use of primar y energy before

Figure 6 Total Energy Use in LAC (Mtoe)

1971 1981 1991 2001 2013

Coal Oil Gas Other Renewables

Nuclear Hydro Biofuel & Waste

Total final energy consumption 4 by end-use sectors, as Table 2 indicates,

Table 2 Total Final Consumption by major end-sectors (Mtoe)

4 Total final energy consumption refers

The greenest electricity matrix

Figure 7 Electricity Matrix by Source and Region

5 Gross power generation is measured

Nuclear Hydro Biofuel & Waste

Intermittent renewable energy - solar, wind, and wave power- recorded a

Solar Photovoltaics Wind

Between 2000 and 2013, Between 2000 and 2013,

LAC’s Solar Photovoltaics LAC’s Wind generation

2000 2002 2004 2006 2008 2010 2012

Non−conventional Renewable electricity sources

.09 .09 .11 Other

Oops! A dirty little secret